St. Augustine Distillery hits 5-year mark riding momentum

Saturday

In the five years the St. Augustine Distillery has been open, co-founders Philip McDaniel and Mike Diaz have seen a lot things go in their favor, but much of it hasn’t come as an accident.

The business is celebrating its fifth anniversary this week, and the company leaders recently talked about their great fortune at the craft industry’s amazing growth and the city’s continued success in drawing visitors in recent years. They’re also quick to point out that they expended a lot of effort and consulted with quite a few experts to help make their own luck.

Diaz, who is also the chief financial officer for the Distillery, said the most important development was the passage of a bill in 2013 that allowed distilleries to sell directly to customers — just two bottles per year at that point but much better than zero.

It took a lot of persuasion by McDaniel, who is also CEO of the Distillery, to garner the support of then Florida Rep. Doc Renuart and Florida Sen. John Thrasher to get the law changed. Without it, the entire Distillery business model of catering to tourists would have been impossible.

It’s also more than good fortune that a large majority of the 700,000 visitors to the Distillery, which is in a historic building on Riberia Street, liked what they saw and tasted on their tours. The Distillery is one of the top-rated attractions in St. Augustine, and Diaz and McDaniel give the credit to the 50 employees there.

“We make alcohol, but we sell experiences,” Diaz said. “That’s really what we do. The secret sauce is not the building. It’s the people who work here. They make visitors feel welcome. They make them feel special.”

Those hosts and other workers have done their jobs well enough that industry insiders named the St. Augustine Distillery as the best distillery tour in North America in 2018 — an award that was previously bestowed on Kentucky heavyweights like Buffalo Trace and Maker’s Mark.

That’s been gratifying for the owners who envisioned the Distillery as a destination for tourists as well as a real, working manufacturing operation. It’s one of the reasons they chose to make all their own spirits on site rather than buying them from another manufacturer, blending them and slapping a different label on the bottles.

“I wanted to be like one of those great restaurants where you get to go and see the chef cooking right there,” McDaniel said. “That’s what I wanted this experience to be where people could see us making and cooking and distilling in real time.”

Aside from all the work, approval hurdles and investment to make the old ice plant building suitable for the Distillery’s purposes, there were quite a few challenges in the way of ownership.

First, there were the laws that weren’t conducive to craft distillers. Diaz and McDaniel had to learn to lobby for change and adapt to what couldn’t be adjusted. (They’re still working in that arena.)

For instance, in addition to the prohibition on direct sales to visitors, they also couldn’t own the restaurant/bar portion of the project. The part of the building that went on to become the well-received Ice Plant was sold, and it is run as a separate entity by a different ownership group. The Distillery actually has to rent part of it for the gift shop.

Also, the Distillery had to rely on just vodka and gin for the first 2 1/2 years while waiting for its bourbon to age. Craft vodka and gin don’t have nearly the appeal of craft whiskey.

“Like many start ups, we knew we would be operating ‘in the red’ until our core products were ready,” McDaniel said. “In our case, it was our bourbon scheduled for release sometime in 2016 or 2017. We had budgeted, financed and planned to operate (with losses) in 2014, 2015 and 2016.”

Perhaps the most harrowing part of that time was the fact that nobody knew for sure whether the bourbon would be any good. They didn’t know how long to age it in this climate because there was no record of it ever being done before in Florida on a commercial level.

“As they say, ‘You only have one chance to make a first impression,’ and so we knew we had to get it right the first time out of the barrel,” McDaniel said.

The Distillery ended up with an award-winning whiskey at a time when consumers are craving it.

In February, the Distilled Spirits Council issued its annual report that showed 2018 to be the ninth straight year of record spirits sales and volumes. In particular, sales growth in American whiskey was 6.6 percent or $224 million to $3.6 billion in 2018.

It’s the kind of scenario McDaniel and Diaz saw coming years ago when they decided to create the Distillery.

“We were watching trends and we saw that in places like Portland and Seattle and California and upstate New York the craft spirit movement was beginning to happen on the fringes of the country,” McDaniel said.

He attended an industry show in Oregon in 2011 and met Dave Pickerell, former head distiller at Maker’s Mark. The Distillery eventually hired him as a consultant and took his advice. It made sense since neither Diaz nor McDaniel had been in the liquor business before.

“I wasn’t even a whiskey drinker,” Diaz said. “It was an interesting opportunity. It has proven to be a really interesting learning experience.”

They’re still learning, still pushing for legislative changes and still developing new products.

And after five years, they know the bet they made on the business and the city has been a tremendous play.

“For me, I felt like this could be a cool intersection to create a unique new business and something that could be good for St. Augustine,” McDaniel said. “I think it’s turned out to be that.”

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